Guidelines for When Nonprofits Must Issue Receipts

Before we take a deep dive into the various situations of when a receipt is actually required, let’s look at why the IRS wants organizations to provide receipts. For 501(C)(3) organizations that want to remain a public charity they must be publicly supported. Public support refers to the amount of support coming from a broad base of donors or through program service revenue. This is in contrast to a Private Foundation in which support is often received through one primary donor. By being publicly supported, the IRS is looking to the general public to help monitor the activities of the organization and further their compliance with the various laws and regulations, including those related to receipts.

When are receipts required?

Receipts are required when your organization receives a donation greater than $75 and gives the donor something in return. If the organization provides a good or service to the donor, the value of the good or service must be disclosed to the donor. For example, if Sally drops by your organization and donates $500, is your organization required to provide Sally with a receipt? The answer is no, which may surprise you. The organization has no requirement to provide a receipt in this case, but if Sally does want to deduct her contribution on her personal tax return, she is required to maintain documentation supporting her contribution since it is greater than $250. Donors typically maintain this documentation through a receipt from the organization.

Providing goods and services

As noted earlier, receipts are required when there is a donation of $75, and the donor receives either a good or service in return. Often the biggest challenge for organizations in this situation is estimating the value of goods or services received. While researching this article, I came across a court case that disallowed a taxpayer’s charitable contribution because the organization failed to provide a description and value of the goods and services provided to the taxpayer. An example of when this could occur might be a church sponsored school where parents pay for tuition for their child, but in their mind they are making a contribution to the church. This isn’t entirely accurate because they are receiving a service, which needs to have a good faith estimate of the value of that tuition stated on the year-end receipt. The organization must in good faith estimate using comparable values from like-kind items or the estimated value of what the item or service would be purchased for in the marketplace.

What’s required to be included in receipt?

Organization Name

Date of contribution

Amount of cash contribution

Description of any noncash contributions

Statement that “no goods or services were received”

Description and estimate of value of any goods the donor received

You’ll notice above in the fourth bullet point that the estimated value of the noncash contributions is not reported on the receipt. It is the donor’s responsibility to value the noncash contributions, not the organization’s. We often receive questions from organizations that want to provide this information, and the best practice is always not to do so because if the IRS would determine that the organization overvalued the noncash contribution, the organization could be liable for tax fraud.

Common Examples:

Charitable Dinner: Donor pays $100 for a ticket for a dinner fundraising event. The fair market value of the dinner is $25.

What amount can the donor deduct? $75. The difference between the donation amount and the fair market value.

Is a receipt required? Yes, donation received was greater than $75 and the donor received goods. The receipt should state that the value of goods received was $25.

Silent Auction: Donor pays $100 for a silent auction item. The fair market value of the item is $200.

What amount can the donor deduct? $0. The value received by the donor is greater than the amount donated; therefore, no deduction is allowed.

Is a receipt required? Yes, donation received was greater than $75 and they received goods. The receipt should state that the value of goods received was greater than the contribution and therefore no charitable contribution is allowed.

In conclusion, it’s always a best practice to provide donors with any year-end receipts prior to January 31st of the following year. Be sure to contact your tax advisor when any usual contributions are received to ensure all documentation is completed appropriately. Finally, know and understand your organizations responsibility to donors for providing appropriate

TD&T CPAs and Advisors is a public accounting firm specializing in helping nonprofit organizations navigate both challenges and opportunities. We work with over 350 organizations in Iowa providing assurance and tax services, as well as best practices consulting. Feel free to contact us with any questions you may have, we’re always happy to help!

Amanda Lane, Tax Manager at TD&T CPAs and Advisors, P.C., provides an overview of how to provide receipts to donors in this quarter’s newsletter. This article will address, why receipts are required, when they are required, and what should be included with the receipt. Amanda serves social service organizations, colleges and universities, membership organizations and many others throughout.